Remember back in the early days of the internet when a message arrived in your e-mail inbox telling you the story of a rich foreign prince who wanted to claim his wealth but needed your help to do so? Remember how excited you were initially, thinking that all you had to do to help secure a fortune was send a relatively small amount of money somewhere that you had never been? Remember how disappointed you were when you finally realized that it was yet another scam?
Investing overseas can seem just as scary as responding to an e-mail from a deposed prince, but it does not have to be. For years we have heard of the super-rich keeping money in Swiss banks or investing in tiny island nations to boost their income or reduce their taxes. Many of us have erroneously thought that those options were only open to people with enough money to hire a team of investment advisors and attorneys to do this for us, but the internet has made investing internationally relatively easy.
"Personal Rate of Return from 01/01/2013 to 11/13/2013 is 28.5%." Gosh, I love logging into my 401(k) account with @Fidelity
— Yes, I Am Cheap (@yesiamcheap) November 14, 2013
I’m investing overseas, albeit a tiny amount, and have been really happy with the gains that I have seen so far. In fact my 401(k) account is up nearly 30% this year helped by both a surging American stock market and my overseas account.
Think you might want to invest overseas? Here are a few ways to get you started.
Stick With A Major American Bank
There’s something about dealing with a bank that you are already familiar with, know and trust. Many large American banks including Citibank have international branches that can simplify the process and help with your offshore investments by creating offshore accounts for you.
The best thing about dealing with American banks is that they help take care of the potential tax side of the equation. So, if they need to generate a 1099-INT for you at the end of the year, it’s done! You won’t need to sit there at tax time figuring out how much you potentially owe Uncle Sam.
Invest In “Safe” Countries
While you might not know where Burkina Faso is (it’s in West Africa) I bet that you know where the United Kingdom is. When you are just beginning, start with a country that you know with established financial markets. Investing in emerging markets can potentially result in large gains; it can also be intimidating and scary to have your money invested in a country that might destabilize taking your investment with it.
Established countries usually have banking and investment rules that are easier to navigate than those in emerging markets. Also, like the American banking system, there are usually some rules that protect investors and their money. With that said, you should always research the country where you plan on investing.
Try Mutual Funds
I am currently investing in emerging markets mutual funds within my 401(k) account. That’s probably one of the easiest ways to get started. This is not to say that there is no risk involved. Remember the old adage, “the greater the risk, the higher the potential reward”; this hold true no matter whether you are investing in individual foreign stocks or mutual funds.
Buy American Traded Foreign Stock
There are plenty of major companies headquartered in foreign countries that have listing on U.S. traded exchanges that represent ownership in the foreign stock. This type of stock is called an ADR or American Depository Receipts. Large companies that trade as ADRs include Nokia, Novartis (makes Ritalin, Toyota, Sony and BP Amoco. These are companies that you have already known for years. Is it risky to invest in these companies? I would say no more so than their American counterparts. I’ve chosen some of the largest companies in the world, but ADR listings also exist for much smaller companies as well.
Do you still think that investing overseas is only for the 1%? Nope! You might even already have overseas investments in your retirement portfolio without knowing it. Opportunities to invest in foreign countries abound and should be included in any well rounded portfolio.
Have any foreign investments that you want to share? My cousin is invested in a chicken farm on an island in the Caribbean. Hey, it’s not traditional, but it’s making him money.